Everyone has heard of trading, but few truly understand what it entails. It sparks curiosity, with some seeing it as a scam, while others believe it’s a way to become wealthy.
But what is the reality of trading? Is it a risky or profitable activity? What really matters in a trader’s life, and how can someone become a trader?
In this guide, we break down everything you need to know about trading, from its fundamentals to how you can start your journey in this exciting financial world.
Trading can have many different meanings. Originally, the word “trading” comes from English and simply means “exchange”—referring to any exchange of value between two parties. In that sense, any commercial transaction is a form of trading.
However, when people talk about trading, they are usually referring to the buying and selling of financial assets. Some of the most actively traded markets include:
To succeed in trading, a trader needs a solid theoretical foundation. This includes :
These skills help traders speculate on asset prices and make informed decisions.
Trading is a field that attracts a lot of interest. The rise of the internet has made it more accessible, whereas in the past, it was a profession limited to investment banks, trading firms, and hedge funds.
With the emergence of online brokers, anyone can now access financial markets and trading instruments more easily. Social media has also played a major role in bringing attention to trading, leading many people to consider it as a career or side activity.
There is no single degree or official training program required to become a trader.
Trading is a multidisciplinary field that requires knowledge across multiple domains, including:
Aspiring traders can learn independently or pursue academic degrees in economics, finance, accounting, or taxation, which provide a strong foundation for financial market understanding.
There are multiple ways to gain trading expertise:
For example, InvestX has developed a trading application designed to educate users, providing personalized guidance and valuable resources to help them navigate the trading world effectively.
Trading brokers, also known as brokers, act as intermediaries between investors and financial markets. Through various contract types, they allow traders to speculate on the price movements of specific assets.
There are several types of brokers, each catering to different trading strategies and investment goals.
Brokers Specialized in PEA (Stock Savings Plans)
Generalist Brokers
Brokers Specialized in Derivatives & Leverage Products
Each broker offers different contract types, market access, and trading conditions. The best choice depends on the trader’s experience level and strategy:
Selecting the right broker is essential for optimizing profitability and managing risk effectively.
In trading, there are primarily two types of contracts between a broker and a trader:
These contracts allow traders to open and close positions on the price of a financial asset. The broker commits to paying the trader’s profit if the trade is successful or absorbing the loss if the trade goes against them.
Best for : Short-term traders, those with smaller capital (< €1,000), and traders using strategies like scalping.
Best for : Traders with larger capital, those looking for longer-term strategies, and investors seeking more structured financial instruments.
Choosing between CFDs or Futures depends on your capital, strategy, and risk tolerance.
When talking about trading in financial markets, we refer to a wide range of assets and markets. Here are the main financial markets and instruments used in trading in 2024:
Forex, short for Foreign Exchange, is the largest financial market in the world, with a daily trading volume exceeding $6.5 trillion.
It is also one of the most popular markets for traders, as they speculate on currency price movements by opening positions on currency pairs.
Some of the most commonly traded forex pairs include:
Company stocks are one of the most well-known asset classes in the financial world. Each stock represents ownership in a company, meaning that when an investor buys a stock, they acquire a share of that company.
While many investors buy stocks for the long-term, traders use CFDs on stocks to speculate on price movements and attempt to profit from both rising and falling markets.
Indices work like baskets of stocks, tracking the performance of a group of companies within a specific market or country.
Some of the most widely recognized stock indices include:
Indices provide diversified exposure to financial markets and are popular among traders who want to speculate on broad market trends rather than individual stocks.
Commodities are physical goods traded on financial markets. They include:
Commodities attract traders due to their price fluctuations, which are influenced by global supply and demand, geopolitical events, and economic trends.
Cryptocurrencies are a relatively new asset class but have already become a key part of trading strategies.
In just over a decade, digital currencies have disrupted financial markets, offering traders high volatility and opportunities for speculation.
Crypto traders take advantage of bull runs (rising markets) and bear markets (declining markets) by speculating on Bitcoin (BTC), Ethereum (ETH), and other altcoins.
Due to their rapid price swings, cryptocurrencies remain one of the most exciting and dynamic markets for traders.
To succeed in trading, having the right knowledge is crucial, as discussed in the trading education section. However, traders also rely on various tools and external resources in their daily activities.
A trader’s main tools include:
A trader’s trading platform is a key element of their setup. It is where they:
Some brokers provide their own proprietary platforms, but many allow traders to connect their accounts to external platforms for a better experience.
The most widely used platform is MetaTrader, with:
Other platforms include:
There are also market analysis terminals that serve as comprehensive research tools, allowing traders to conduct:
Technical indicators are a crucial part of technical analysis, helping traders identify market trends and make data-driven predictions.
Some of the most popular technical indicators include:
The economic calendar is another essential tool, allowing traders to monitor economic events that can impact financial markets. Key events include:
Traders use this calendar to anticipate market movements and adjust their strategies accordingly.
Stop-loss and take-profit orders are essential risk management tools that help traders:
Since traders cannot always be watching the market, these tools help enforce discipline and protect capital.
Placing these orders strategically is crucial.
Leverage is widely used in trading, particularly by experienced traders. However, it should only be used by those who fully understand its risks.
How does leverage work?
For example :
Leverage can be dangerous if not used wisely.
Leverage should be used carefully and strategically, ensuring that it aligns with proper risk management.
To analyze the price movements of financial assets, traders rely on different types of analysis. The three main approaches are technical analysis, fundamental analysis, and behavioral analysis.
Each of these methods plays a crucial role in trading. By combining them, traders can increase their chances of making profitable trades.
Trading is based on speculation. By applying different analytical techniques, traders aim to understand price behavior and predict future movements.
Technical analysis is one of the most widely used methods in trading. It focuses on charts and historical price data to identify patterns and trends.
Through technical analysis, traders study past price movements to understand how an asset has reacted in different market conditions.
To refine their predictions, traders use technical indicators, such as:
Technical analysis relies heavily on mathematical models and trend analysis to anticipate the next price movement of an asset.
Fundamental analysis goes beyond price charts and focuses on external factors that influence an asset’s value.
For example, when analyzing a company stock, traders examine:
This type of analysis helps traders determine whether an asset is overvalued or undervalued based on its intrinsic value and growth potential.
Behavioral analysis is less common but provides valuable insights into market sentiment. It focuses on investor psychology and crowd behavior to predict market reactions.
A good example in the crypto market is FUD (Fear, Uncertainty, and Doubt). When a major negative event occurs, such as the collapse of an exchange like FTX, many investors panic and sell off their holdings. This mass exit often leads to a significant price drop across the market.
Understanding how investors react to news and trends allows traders to anticipate potential market movements and adjust their strategies accordingly.
In trading, there are several strategies that traders adopt based on their risk tolerance, time commitment, and market expertise. While there are many different approaches, the three main trading strategies are:
The primary difference between these strategies lies in how long traders keep their positions open.
Scalping is the most aggressive and high-risk trading strategy. Traders using this method open very short-term positions, typically lasting from a few seconds to a few minutes.
Because price movements over such a short time frame are minimal, scalpers rely on high leverage to amplify their potential gains. This technique is highly risky and is suitable only for experienced traders who can react quickly to market changes.
Day trading is the most common strategy in the trading world. It involves opening and closing positions within the same day, usually over a period of several minutes to several hours.
Day traders never leave positions open overnight, as they aim to profit from intraday market movements without being exposed to overnight risks such as market gaps or unexpected news.
Swing trading is considered the safest trading strategy and requires the least amount of technical expertise. It is a longer-term approach, where traders buy an asset and hold it for several days, weeks, or even months.
In the crypto market, long-term holders (HODLers) often use this approach. However, swing traders need to choose their brokers carefully, as some brokers charge overnight fees (swap fees) for positions that remain open beyond market close.
Certain trading instruments, such as CFDs (Contracts for Difference), are not ideal for swing trading, as they often involve high fees for long-term positions.
Trading is one of the most controversial financial activities. On social media, many influencers promote it as a secret to wealth, often presenting it as an easy way to make money. The rise of Telegram trading groups has further fueled this perception.
But is trading truly profitable?
There is no magic answer to this question. The most important thing to understand is that trading is a profession like any other. No one can become a successful trader overnight without the necessary theoretical knowledge and technical skills.
Like any high-risk financial activity, trading can be profitable for experienced traders who understand the markets, develop solid strategies, and manage risks effectively. However, for those who enter without proper knowledge, trading can quickly become a financial disaster.
Despite the mystery surrounding trading, it is neither easy nor guaranteed to make money.
For beginners who view trading as a way to get rich quickly, the reality is often disappointing. Trading requires:
Without these elements, trading is more likely to lead to losses than profits. Those who succeed in trading are the ones who treat it as a skill to be developed over time, rather than a shortcut to wealth.
Trading can be a high-risk activity, but the level of risk depends on the strategy, knowledge, and risk management of the trader.
With the right education, capital management, and well-informed decisions based on thorough analysis, trading risks can be significantly reduced.
However, for inexperienced traders who enter the market believing they can get rich quickly without proper risk management, trading can lead to significant financial losses.
To reduce risk as much as possible, traders should follow a few key principles:
Even with technical knowledge, experience, and in-depth analysis, trading will always involve risk. The key to success is understanding and managing these risks effectively rather than trying to eliminate them entirely.
One of the most common questions beginners ask when getting into trading is how much starting capital is needed. The amount of capital a trader has is crucial, as it determines the size of their positions and their risk exposure.
Even though risk can be managed and minimized, trading involves both wins and losses. Every trader, no matter how experienced, will face losing trades. This is why having sufficient starting capital is essential.
In the long run, if a trader makes informed decisions and follows a sound strategy, they can achieve consistent gains. However, it would be unrealistic to expect never to lose a trade. Even the best traders experience losses.
A trader’s capital should be large enough to absorb losses while allowing them to continue executing their strategy without major disruptions.
The more capital a trader has, the more control they have over risk management, allowing them to trade with less pressure and greater strategic flexibility.
Money management is one of the most crucial aspects of a trader’s success. It defines the level of risk a trader is willing to take and directly impacts the long-term sustainability of their strategy.
The more aggressive a trader is with their capital allocation, the higher the risk of losing their entire portfolio.
A general rule in trading is to never risk more than 2% of total capital per trade. This prevents a series of losing trades from wiping out an account too quickly.
To determine the appropriate position size, traders should consider:
Trading psychology plays a key role in money management. Successful traders are those who:
One of the biggest mistakes in trading is letting emotions take control. Many traders lose money because they increase their position size irrationally, hoping for quick profits or trying to recover losses.
To achieve long-term success, traders must respect risk management rules and avoid unnecessary risks that can damage their capital.
Risk Warning : Trading financial instruments and/or cryptocurrencies carries a high level of risk, including the possibility of losing all or part of your investment. It may not be suitable for all investors. Cryptocurrency prices are highly volatile and can be influenced by external factors such as financial, regulatory, or political events. Margin trading increases financial risks.
CFDs (Contracts for Difference) are complex instruments with a high risk of rapid capital loss due to leverage. Between 74% and 89% of retail investor accounts lose money when trading CFDs. You should assess whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Before engaging in financial or cryptocurrency trading, you must be fully informed about the associated risks and fees, carefully evaluate your investment objectives, level of experience, and risk tolerance, and seek professional advice if needed. InvestX.fr and the InvestX application may provide general market commentary, which does not constitute investment advice and should not be interpreted as such. Please consult an independent financial advisor for any investment-related questions. InvestX.fr disclaims any liability for errors, misinvestments, inaccuracies, or omissions and does not guarantee the accuracy or completeness of the information, texts, graphics, links, or other materials provided.
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